Buyers Rush to Cash in on China's Pile of Bad Debt

Article excerpt

The hottest deal among investors in Hong Kong this year is a huge
bet that a slowdown of the Chinese economy will create a new wave of
bad debt.

On Thursday, China Cinda Asset Management, one of the biggest
"bad banks" set up by the Chinese government to absorb deadbeat
loans from the financial system, raised about $2.5 billion in a Hong
Kong share sale, according to three people familiar with the deal.

Cinda's initial public offering is the biggest in Hong Kong this
year. The deal was priced at the top of the marketed range after
receiving exceptional demand from big overseas funds and individual
local investors, the people said, declining to be identified because
the information was not public.

In the 20 years that have passed since Tsingtao Brewery became
the first Chinese company to list shares directly on Hong Kong's
stock exchange, the sales pitch to foreign investors in the hundreds
of Chinese I.P.O.s that have followed has almost always been some
variation on this: "It's a chance to buy into China's booming growth
story."

Now, as it becomes clearer that China's decades of double-digit
growth are a thing of the past and that the government under
President Xi Jinping is serious about accepting some short-term
economic pain for the sake of better balanced and more sustainable
growth, investors are having to make significant shifts in their
approach to China.

A crackdown on conspicuous consumption among government
officials? Dump shares in producers of rice wine -- the stock of the
Kweichow Moutai Company, for example, is down 35 percent this year.

Demographic shifts mean the population is graying fast? Buy
shares in Fu Shou Yuan International, a fast-growing Shanghai
company hoping to list in Hong Kong this month, according to a
preliminary term sheet for the deal. Fu Shou Yuan, meaning "Garden
of Prosperous Longevity," is one of China's biggest operators of
cemeteries and providers of funerary services.

The country is on the verge of a new wave of bad debts after five
years of unprecedented growth in lending? …